As a first time home buyer with less than perfect credit am I more likely to get better rates at an online company or at a local bank?
Most local banks do not have programs for people with less than perfect credit. A lot depends upon exactly what is on the credit report and how much you are looking to put down. Your interest rate is a measurement of the risk of the loan. This includes credit, employment, down payment, assets, income, debt to income ratio, etc. Because of your credit, I would look at a mortgage company.
Online companies pay for leads. When you submit your information online you are likely to hear from lenders who are not familiar with your area, whereas a local bank or mortgage company knows, and has a working relationship, with the real estate professionals such as attorneys, appraisers and realtors that you will be working with. Some online lenders (not all) prey on borrowers with less-than-perfect credit by charging high interset rates, high closing costs, and unnecessary points. Prospective buyers should ask their realtor or attorney for a referral to a local bank or mortgage company that specializes in high-risk loans.